The Influence of Team Composition and Decision Processes on Investment Portfolios: The Case of Investment Clubs
51 Pages Posted: 15 Apr 2014 Last revised: 30 May 2014
Date Written: May 30, 2014
Abstract
Investment clubs offer the opportunity to form a well-diversified portfolio with private investors being invested in that portfolio. Nevertheless, many investment clubs hold undiversified portfolios. We hypothesize that the clubs’ composition and the characteristics of the decision making process have an impact on the number of stocks held by the club. We analyze this research question by combining the transaction records and basic characteristics of German investment clubs with a survey that measures the design of the clubs’ decision making process and the composition of their members. We find that clubs that desire to find a decision that is supported by a large fraction of club members have substantially fewer stocks in their portfolio. The analyses also reveal that the number of stocks decreases if preference aggregation becomes more difficult.
Keywords: Investor Behavior, Diversification, Group Decision Making, Investment Clubs
JEL Classification: G11, D70
Suggested Citation: Suggested Citation